The Star Tribune plans to exit bankruptcy in the fall, about 10 months after a sharp decline in advertising and circulation revenue forced it to default on heavy debt payments.
On Thursday night, the company filed a reorganization plan that it said has the approval of creditors who hold approximately $384 million in secured debt and $96 million in unsecured obligations.
Under the proposed plan, the Star Tribune would emerge from Chapter 11 with $100 million in debt and would be worth between $118 million and $144 million, including the value of its real estate. First-lien creditors would receive new common stock and secured notes with a value of 32 cents on the dollar and would own the company upon approval of the plan.
Unsecured creditors would receive a small cash distribution or new common stock and warrants in the newly reorganized company. The value to those creditors would be a penny on the dollar.
The Star Tribune's current owners, majority stakeholder Avista Capital Partners and the Chris Harte Family Trust, would be out of the ownership picture and walk away with nothing.
Current publisher and chairman Chris Harte said Thursday that he will leave the company before it emerges from bankruptcy. A new board of directors would be formed prior to emergence and a new publisher and chief executive put in place.
Harte said the reorganization plan was drafted in consultation with senior lenders and the committee for unsecured creditors.
"This is our plan. We believe it will be acceptable to the majority of people [creditors] who will vote on it," Harte said in an interview.
A hearing is scheduled for July 29 in U.S. Bankruptcy Court in New York, where any objections can be made. That would be followed by a scheduled Sept. 17 confirmation hearing. Harte told Star Tribune employees in a memo last night that the company would officially leave Chapter 11 "a few weeks later."
Bankruptcy attorneys said the filing of a reorganization plan is a positive step for the Star Tribune.
"This is a big step because it shows one party is putting all of its cards on the table," said Mark Kalla, an attorney for Dorsey & Whitney. "It's usually seen as a very promising movement toward a conclusion."
"It shows that there is hope," said Gregory Duhl, a bankruptcy professor at William Mitchell College of Law.
The reorganization plan was filed about 24 hours after the Star Tribune's last major union -- representing truck drivers -- approved a cost-cutting contract. The company now has 94 percent of its unionized workers under new contracts and expects to successfully renegotiate the contracts of four remaining small unions.
"We've done this relatively quickly," Harte said. "It didn't seem easy, but everyone pulled together and made the changes that had to be made. The lenders could have forced us into liquidation, but they made the decision that there is more value in the company going forward as an operating company."
Harte said readers would see no difference in the newspaper post-bankruptcy.
The Star Tribune entered bankruptcy Jan. 15, after a two-year period that saw revenue sink 19 percent, to $246 million. The plunge in ad revenue accelerated in 2009, with the weakening economy.
In response, the newspaper's management has slashed jobs through buyouts and layoffs, and restructured contracts with all of its major unions. In Thursday's filing the company said it had eliminated a total of 675 jobs from 2007 through the first month of this year. The company has about 1,250 full-time equivalent employees.
Other newspapers have entered bankruptcy in recent months, including the Philadelphia Inquirer, the Chicago Sun-Times and the Tribune Company, owner of the Chicago Tribune and Los Angeles Times.
The Star Tribune's average daily circulation is about 320,000. Its Sunday circulation of approximately 497,000 makes it the 11th-largest Sunday paper in the country. The website, StarTribune.com, attracts an average of 6 million unique visitors a month.
David Phelps • 612-673-7269